What is private credit, and what changed in 2026

Most adviser conversations about private credit still start with hesitancy." After ASIC released Report 814 in September 2025, that is rightly, a good starting point.

Questions advisers should start asking is whether the manager you are looking at has actually engaged with what the regulator found.

The Australian private credit market is estimated at around $200 billion in 2024, with approximately half of that figure tied to real estate finance (ASIC REP814 p.6, p.19). Those two numbers are the spine of every serious diligence conversation in this asset class. Most explainers will give you the first. Few will give you the second and almost none will give you what ASIC then says about how that real estate exposure is structured, valued, and disclosed.

The Australian market in one number

ASIC's REP 814 Private credit in Australia, released 22 September 2025, estimates the Australian private credit market at around $200 billion in 2024 (REP814 p.6, p.19). The report flags that this figure is methodology-dependent: the EY 2025 Australian Debt Market Update estimates $213 billion; the Alvarez & Marsal Australian Private Debt Market Review 2024 estimates $205 billion (REP814 p.10). Other estimates running lower reflect more restricted definitions (closed-end funds only, for example).

The composition matters more than the headline. ASIC's segmentation puts:

• Corporate and commercial lending at 20 to 40 percent of the market
• Asset-backed and securitised exposure at 10 to 30 percent
• Real estate at 40 to 60 percent (REP814 p.19)

If you are a wholesale investor or an adviser allocating to private credit in Australia, you are most likely allocating to real estate credit, whether the fund label says so or not. We read this as the most important framing decision in the asset class.

What private credit actually is

The cleanest definition comes from REP814 itself. Private credit is "non-bank lending that is not publicly traded or widely issued publicly" (REP814 p.18).

That covers four standard lending strategies:

• Corporate lending. Direct loans to operating businesses, typically with cash-flow covenants.
• Real estate lending. Loans secured against residential or commercial property, frequently with development or construction exposure.
• Asset-backed lending. Investments or loans secured against pools of cash-flowing assets such as mortgages, equipment leases, or receivables.
• Debt instruments. Direct investments in bonds, debentures, or similar instruments held privately.

The labels are not interchangeable. ASIC treats terminology as one of its four key concern areas in REP814, alongside fees, conflicts, and valuations. Our view is that "private credit", "private debt", and "direct lending" need to be defined per fund, not assumed.

What REP814 found, in four areas

REP814 structures its findings around four key concern areas plus two cross-cutting themes. That structure matters. Some recent commentary has collapsed the four areas and the cross-cutting themes into a flat list of six, which obscures the priority weighting ASIC explicitly assigns (REP814 p.14, where priority issues and secondary issues are listed).

Conflicts of interest

ASIC's first concern is structural. Managers may retain fees paid by borrowers rather than passing them to investors, lend through special purpose vehicles at higher rates than passed through to the fund, and structure loan workouts in ways that benefit the manager over the investor (REP814 p.7).

The report quantifies what this can look like in practice. Managers retaining 50 to 100 percent of upfront and default-related borrower fees is described as a market pattern. SPV interest margin retention is named as a recurring structure (REP814 p.7). The sharpest line in the section is at p.40: "Managers taking default interest is probably the most egregious example of managers benefiting at the expense of investors." That is unusually direct regulator language and worth weighing.

Fees and remuneration

Fee disclosure is where the most quantitative finding sits. Non-disclosed remuneration, ASIC reports, can be three to five times the publicly disclosed fund management fees (REP814 p.7). That is not a minor disclosure gap. It is a multiple.

The report provides bands. Base fees range from 0.25 to 2 percent per annum (REP814 p.36). Interest-margin fees typically fall between 2 and 4 percent on performing loans, and 4 to 8 percent on defaulted loans (REP814 p.40).

The implication we draw is that a single transparent management fee figure tells the investor a fraction of what the manager actually earns. The look-through diligence question follows naturally.

Portfolio transparency and valuations

This is where the asset class is most opaque, and where REP814 is most pointed.

Real estate valuations are frequently conducted on a gross-rent basis rather than a net-effective-rent basis, with rental incentives that may be up to 30 or even 50 percent inflating valuations (REP814 p.31). For construction lending, ASIC notes that LVRs are often quoted on completion value rather than cost: an LVR of 70 percent on completion may sit closer to 80 to 90 percent during construction (REP814 p.36).

The most striking finding in the section is about impairments. Some funds report no impairments at all, despite holding sub-investment-grade exposure. ASIC quotes rating-agency 1-year probability-of-default expectations as 0.5 to 15 percent on BB+ to CCC-rated equivalents (REP814 p.9). The report's own framing: "This is surprising and inconsistent with rating agency expectations." Our reading is that this is a polite version of "the reported numbers cannot be right".

Terminology

The terminology problem is structural enough that ASIC gives it its own concern area. "Investment grade" is often used without involvement of a formal rating agency. "Senior debt" is used without confirming that no other claims rank ahead. LVR is quoted without specifying whether the basis is cost, current value, or forecast completion value (REP814 p.9, p.44).

These are not pedantic distinctions. They change risk. A "senior secured" loan with capital ranking ahead is not what most readers understand "senior secured" to mean. An LVR on completion value is materially different from an LVR on current value during construction.

Two cross-cutting themes that matter more than any single area

ASIC names two cross-cutting themes that run through everything above. They warrant separate treatment.

Liquidity mismatch

Private credit loans typically settle on multi-year horizons. The funds holding them often offer shorter redemption windows. REP814 cites a recent example of a fund delaying redemptions in six-monthly increments through to June 2027, on the basis that "there is no unallocated cash" (REP814 Section 11.4 p.40-41). The fund is not named in our extract.

The structural issue is unchanged from earlier Ekam analysis. Engineered liquidity in a listed wrapper costs investors more than it protects them. The same logic applies to redemption promises in open-ended unlisted funds: the redemption mechanic must match the liquidity of the underlying assets. Where it does not, the cost is borne in stress, not in benign conditions.

The look-through question follows: what is the redemption window of this fund, and what is the actual liquidity of its underlying loans?

Real estate concentration and the construction transfer

The structural fact named at the start of this article, that approximately half of the $200 billion Australian market is real estate, is examined in REP814 Section 10.2. The framing the regulator uses is significant. ASIC describes the growth pattern as the construction risk having "largely transferred from the bank sector to the non-bank sector" (REP814 p.30).

That transfer is not neutral. APRA-regulated bank balance sheets carry construction loans with regulatory capital costs and prudential oversight. Non-bank private credit funds carry the same loans without the same capital treatment. The risk is the same. The buffer is different. The implication for an investor is the same point developed in our analysis of listed versus unlisted credit structures: the wrapper changes the price the investor pays for liquidity, not the underlying risk.

REP814 includes specific examples that illustrate the operational reality. SMSF-targeted real estate funds paying monthly distributions of 0.70 to 1.00 percent on construction loans that produce no cash interest payments (REP814 p.30). Construction loans where the loan amount itself funds the interest reserve: $80 million for construction, $20 million to pay the interest on the $80 million during the construction period (REP814 p.29). These are not abstract risks. They are funded-interest-reserve structures, and they are common.

We monitor the construction cost environment as part of our portfolio diligence. The cost pressure on the underlying borrower is a key input. So is the way the loan capital is structured to absorb it.

The number that should be doing the work

The most strategically important sentence in REP814 is not a quantitative finding. It is at p.12: "Significantly, we note that the Australian private credit market has not yet experienced a credit cycle and associated downturn."

That is the diligence challenge.

Every Australian private credit fund, every disclosure regime, every fee structure, every valuation practice in the sector has been built and tested in a period of growth. The market has not been stress-tested. ASIC names this directly. Our view is that this is the central reason advisers cannot rely on historical performance, historical impairment rates, or historical liquidity behaviour to guide forward expectations.

The demand side compounds the timing question. REP814 notes that approximately $40 billion of Australian bank-hybrid securities are scheduled to mature in coming periods, and that this maturity wave is expected to push more retail money into private credit (REP814 p.45). More capital is entering the asset class before the asset class has been tested through a cycle.

The implication we draw: manager selection in Australian private credit in 2026 is fundamentally different from manager selection in any asset class with a multi-cycle track record. Diligence is no longer "did the fund perform". It is "could the fund perform, given what it has not yet seen". That question is answered through structure and discipline, not through past returns.

What advisers should be asking

The diligence questions follow directly from REP814's findings. They are look-through, specific, and operational. We use them in our own portfolio monitoring and we put them to managers we engage with.

• What is the manager's total remuneration, including non-disclosed components such as retained borrower fees, default-interest retention, and SPV interest margin?
• Are loan valuations conducted quarterly by an independent third party, or signed off by an independent third party?
• For real estate exposures: are valuations conducted on net effective rent or gross rent? What is the rental-incentive assumption?
• For construction lending: is the stated LVR on cost, current value, or completion value? What is the equity cushion against plausible cost escalation, rather than historical escalation?
• Is the fund using funded interest reserves, where loan capital pays loan interest during construction?
• What is the borrower and sponsor concentration across the underlying loans?
• Has the manager operated through a credit cycle? If not, how is performance modelled for one?
• Are "investment grade" labels self-awarded, or from an accredited rating agency?

These are not questions that should embarrass a well-run manager. They are the questions any disciplined manager should be able to answer on the first call.

Not all private credit is the same. The labels are too broad to be useful as a screening signal. The look-through is the screening signal. The questions above are how the look-through becomes practical.

Data sources: Australian Securities and Investments Commission, Report 814 Private credit in Australia, released 22 September 2025; EY, 2025 Australian Debt Market Update; Alvarez & Marsal, Australian Private Debt Market Review 2024.